Finance (No. 2) Bill

Kelvin Hopkins Excerpts

Monday 15th April 2013 Commons Chamber

[The Exchequer Secretary to the Treasury (Mr David Gauke)]

I beg to move, That the Bill be now read a Second time.

It is a great pleasure to present this year’s Finance Bill—a Bill that further demonstrates the Government’s commitment to creating a tax system that is fairer, simpler and more transparent, and one that will promote growth and reward work. Unlike the Opposition, those of us on the Government Benches recognise that we have to address the fiscal mess left us. That means that we have to resist the voices of those wanting to engage in a further splurge in borrowing. But we can take steps to make ourselves more competitive and help people with the cost of living, and that is what we will do in the Bill. I will happily take interventions this afternoon, but to give some structure to my speech it is perhaps worth while my laying out to the Chamber the order in which I intend to discuss the Bill. First, I will talk about the measures that will support growth and enterprise, then the measures that will tackle avoidance and evasion, and then the measures that will increase fairness. Finally, I will talk about the way in which the Bill will help to deliver a simpler tax system.

[Kelvin Hopkins (Luton North) (Lab)]

On the issue of avoidance and evasion, the press reported over the weekend that Britain and its dependencies have more tax havens than almost any other country. Will the Government tackle evasion and avoidance seriously, and save us an awful lot of money?

[Mr Gauke]

As I was trying to make clear a moment ago, I will turn to the subject of evasion and avoidance later on in my speech. The Government have a proud record of taking steps to reduce evasion and avoidance, with legislative measures, support for Her Majesty’s Revenue and Customs and what we are doing at an international level to encourage greater co-operation between jurisdictions to ensure that the net is closing in on those who wish to evade their responsibilities. We will continue to take positive steps on that front.

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[Mr Gauke]

Where there is an element of dishonesty, it is clearly tax evasion, and Her Majesty’s Revenue and Customs has indeed been successful in bringing prosecutions in a number of high-profile cases. Under this Government we have seen the number of prosecutions by HMRC increase fivefold, which is a reflection of how seriously we consider tax evasion and of our determination to assist HMRC in addressing it as much as possible.

[Kelvin Hopkins]

A theme I have raised many times in the Chamber is the number of staff in HMRC. I am sure the Minister knows that every additional tax officer collects many times their own salary, and in the case of business taxation, it can sometimes be hundreds or even thousands of times their salary. Do we not simply need a substantial increase in the number of professional staff in HMRC to make sure we collect all the tax?

[Mr Gauke]

The hon. Gentleman and I have debated that point on a number of occasions. The important thing is to ensure that HMRC has the right expertise and skills, and the right people doing the job. In truth, there has been a significant reduction in HMRC staff over recent years, the vast majority of which occurred under the previous Government. We are increasing the numbers working in the enforcement and compliance area, but a lot of the answer is about ensuring that HMRC can work in the most effective way. I was struck by the increase in the number of tax professionals being trained by HMRC. We do want to invest in skills within HMRC. This is not simply a numbers game but, as it happens, the number of people working for HMRC in enforcement and compliance is going up, not down.

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[Mark Field (Cities of London and Westminster) (Con)]

If there is one small area where I would agree somewhat with the hon. Member for Nottingham East (Chris Leslie), it is that the Chancellor’s room for manoeuvre was incredibly limited as he delivered the Budget four weeks ago. There is no doubt that many of those constraints come as a result of global events. The latest stage in the eurozone debacle as Cypriot banks have been underpinned is a contemporary case in point, and we see ongoing problems in Portugal that I fear will deteriorate as the weeks and months go by.

However, it has become ever clearer that in the coalition Government’s first Budget in June 2010, they were, I accept, complacent about growth. The short pre-election boom following the 2009 VAT reduction and the very large early rounds of quantitative easing lulled the coalition, on assuming office, into believing that the growth that had come about in the two or three quarters before the 2010 election was baked into the system and would somehow do the heavy lifting when it came to deficit reduction. The coalition’s plans to eliminate the structural deficit required the gap between revenue and expenditure to be narrowed by some £159 billion by 2014-15. Tax rises were expected to contribute £31 billion and spending cuts £44 billion, and the remaining £84 billion was meant to come from compound growth of 2.7% throughout the Parliament.

Unfortunately, however, as we now know, the coalition ended up with possibly the worst of all worlds. It has received unwarrantedly relentless criticism from Labour Members for so-called harsh austerity measures when, in reality, it has too often lacked the political will to execute the levels of savings required. For all the rhetoric, we are still overspending by some £300 million every day. We are borrowing, not spending, that amount each and every day, and that means that we will continue to have to borrow to the tune of some £120 billion year on year.

[Kelvin Hopkins]

The hon. Gentleman seems to be saying that the Conservative coalition Government had the benefit of Labour’s reflationary strategy, which was implemented before the election, but then reversed it so that things have got worse ever since. Should they not simply have carried on with Labour’s strategy?

[Mark Field]

The hon. Gentleman makes a good case, I suppose, but we all know that the reality was that the short-term boost of VAT reduction and the early batches of QE was unsustainable. They were a pre-election boomlet, but, as I have said, the entire political class became rather complacent and thought, somehow, that the worst was behind us after the crash of 2008. We now know that that simply was not the case.

In 2010 the entire political class should have looked the electorate in the eye and been clear about the magnitude of the task that lay and, I am afraid, still lies ahead to rectify the public finances, but we are where we are. I personally take the view that talk of radical tax cuts from some on the Government Benches is perhaps unrealistic. I fear, for a start, that confidence is so low that until it is restored almost any tax give-aways are more likely to be squirreled away by individuals and companies than pumped back into the economy.

I also think we would run the serious risk of the markets losing faith if we were to play even faster and looser with public borrowing. In spite of the recent loss of our triple A rating from Moody’s, the Chancellor’s great achievement—it should not be underestimated—is that we are still able to borrow in international markets at such low interest rates. The lesson of both 1931 and 1976 is that once the markets turn, all is lost.

My main hope for the Budget and this Bill was that the coalition would take some of the longer-term decisions that the British economy requires. I am pleased that resource is being set aside for key, shovel-ready infrastructure projects. I had hoped that cash would be accompanied by decisions and leadership on aviation and energy infrastructure. We cannot let these sensitive political footballs be kicked once again into the next Parliament. I think that the UK, as a trading nation, requires certainty on those issues, not an endless parade of commissions and reviews.

I am pleased, however, that the Treasury has helped out small business. The march towards ever lower rates of corporation tax, as the Exchequer Secretary has pointed out, is highly welcome, as are assurances that small firms will be given a chance to bid for Government contracts under the small business research initiative.

The extent of capital gains tax relief to attract start-up capital for new limited companies is also very good news. Best of all, however, is the knocking off of the first £2,000 of employer national insurance contributions for small and micro-sized businesses. That will, I hope, begin to chip away at the worryingly high levels of youth unemployment by lifting some of the obvious disincentives to taking on new staff.

I am afraid that I am a little less sanguine about the Chancellor’s flagship Help to Buy plan. I appreciate its raw politics, underpinned as it is by a desire to help struggling younger people on to the housing ladder, many of whom are paying much more in rent than they would as part of a mortgage, if only they had a deposit. Nevertheless, I ask the Treasury to give considerable thought in the consultation period to what we are trying to achieve. Let us look carefully at supply rather than just finance, since I suspect that the latter will simply help keep prices out of the reach of the very people whom we wish to serve, as the hon. Member for Edmonton (Mr Love) has said. I do not wish the taxpayer to be on the hook for the consequences of a reinflated property bubble. Let us not forget the US experience that lay at the heart of the financial crisis.

I, like many other Members, am also disappointed that the Office for Budget Responsibility’s predictions for our economy as recently as the autumn statement on 10 December 2012 were proved, only 14 weeks later in the March Budget, to have been so considerably off beam. Few doubt that economic forecasting is an especially dismal science. However, the OBR’s intervention in December proved essential in buying the Chancellor crucial breathing space at a time when many commentators had assumed that we were about to flunk our plan to reduce the deficit year on year. To that extent I accept what the hon. Member for Nottingham East has said. Many even-handed people will regard that as a sleight of hand, but, more importantly, the scene was set for cynicism and deep disappointment when aggregate borrowing for the next four years was projected at some £49 billion higher only 14 weeks after the autumn statement.

It is worth saying, however, that that is part of a tradition during all my 12 years in this House. Every single Budget between 2001 and 2007 forecast that public finances would move back into surplus in about three or four years’ time. Instead, as the hon. Gentleman will remember, debt and the annual deficit rose inexorably while the Treasury conjured the illusion of fiscal stability. Similarly, at every autumn statement since June 2010, the OBR has, I fear, been forced to downgrade growth out-turns while continuing to hold somewhat optimistically to the notion that the public finances will be transformed by robust growth in two years’ time.

The establishment of the OBR was meant to herald a fresh era of forecasting credibility, but it now seems all too reminiscent of the previous Administration’s discredited financial projection. I think that observers are beginning to wonder whether we should have any regard for the OBR’s latest set of predictions or, indeed, take with anything more than a pinch of salt assurances that recovery is only around the corner.

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[Frank Dobson]

I never said for a minute that it started recently. It has been going on for donkey’s years. I am not sure about the Lib Dems, but I cannot remember an organisation when Labour was in government called Tories in Favour of Stopping Tax Avoidance. Perhaps the minutes will be produced by someone, but it seems extremely unlikely, because everything the Tories ever said when they were in opposition was about Labour being too nasty to the finance industry and proposing things that might damage it. So we trundled on, until the finance industry damaged the rest of us. It is worth remembering that the banks’ wrongdoing has cost us £700 billion in lost production since the crash. That is what we have all lost.

These British banks and firms of accountants are not just organising tax avoidance in the tax havens for all the swindlers. We now know—from prosecutions and from agreements that they have come to with the American authorities—that they have been organising money laundering from massive drug dealing, gun running, people trafficking and busting sanctions on places such as Burma.

I think the British banks should be doing something a bit different. I think they might possibly have done a bit of investing in this country. In the past, small businesses all over the country could go and see their local bank managers at one of the big banks and talk to them about their problems. They knew one another and knew what their prospects were. People could borrow money that way, and it worked. Then the banks started centralising all the funds, so nothing is left with the local bank manager and local firms now have to be interrogated by an algorithm—that is what it boils down to—in the banks’ headquarters. They have not been investing in this country. We have to ask ourselves why a large proportion of the industries that were privatised are now owned by foreign owners, such as Électricité de France or the Australian outfit that owns Thames Water. Could the British banks not have invested in British businesses? Was there not enough profit for them? Does that mean that the profits in the tax havens and from all sorts of derivatives activities were going to raise them more money? That may be so, but what has happened demonstrates just how awful the performance of the British banks and finance industry has been.

I do not think this Finance Bill, any of the proposals the Government have put forward or even the one or two they have started implementing reflect the scale of wrongdoing that needs to be put right—the swindling that involved British companies and the damage that does to us as a trading nation with, until recently, a reputation for honesty and fair dealing. At its core—I say this with some care—this is a corrupt set-up. We have a banking industry and an accountancy industry that are involved in criminal and semi-criminal activity all over the world, yet we say to countries such as Bangladesh, “There’s too much corruption in your country.” If we are going to start trying to sort out corruption in other places, it is about time we did it here and where British companies are operating. We need transparency, and we certainly do not need tax havens, especially those that fly the British flag. Their objective is not transparency but the complete opposite: it is to be as obscure as is humanly possible in order to keep the tax authorities out.

Another point that is constantly made is that, if we were to change the rules on banking and accountancy, the very clever people in the City would simply get round them. That is unacceptable. Why should such behaviour be acceptable in the finance industry? We would regard it as totally unacceptable if the building industry said, “You can rely on us to get round the building regulations,” if the aviation industry said, “We can get round the safety rules,” or if the pharmaceutical industry said, “We won’t carry out the proper checks that are required. We can get round those rules.” We ought to regard it as totally unacceptable when people representing the finance industry say, “Whatever you do in the House of Commons, we’ll get round your rules.”

[Kelvin Hopkins]

The hon. Member for Redcar (Ian Swales) suggested that some people ought to go to prison for such behaviour. Does my right hon. Friend agree that that might concentrate a few minds?

[Frank Dobson]

It certainly should. I am astonished that no one in this country has yet been prosecuted for the fraud involved in the LIBOR rate-rigging, including the British Bankers Association, which was, after all, running the LIBOR system. People were defrauded, so why has no one been prosecuted? I do not know, but someone should be.

Another excuse for not sorting out the problems in our banking industry is that we must not go it alone because that would put the industry at a disadvantage compared with others. We are told, for instance, that we cannot possibly be the first country to introduce a financial transaction tax—a Tobin tax, a Robin Hood tax—because to do so would put our banks at a disadvantage. However, Germany and France have now proposed an EU-wide financial transaction tax, yet our Government still say no. What are they frightened of? The rate of tax proposed on derivatives transactions that the 11 countries led by Germany are establishing in Europe is 0.01%. Apparently, our financial services industry is so pathetic that it would be driven to ruin by a transaction tax rate of 0.01%.

In fact, we already have a transaction tax in this country: it is called VAT. Nearly every other business in this country is paying a transaction tax of 20%. If everyone else is deemed capable of paying 20%, why should the financial services industry be deemed incapable of paying 0.01% on its transactions, 85% of which are carried out within the industry, between its various constituent parts, rather than with anyone else. That is pathetic, and it is about time that we recognised that a substantial amount of money could be raised for the taxpayer in this country, even at a rate of 0.01%.

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[Kelvin Hopkins (Luton North) (Lab)]

I cannot resist commenting on one of the points made by the hon. Member for Macclesfield (David Rutley). He suggested that businesses are somehow more competitive because we have a better tax regime, yet our trade deficit is in a terrible state, and getting worse. If everything is so brilliant, we should be doing better on international trade.

[Frank Dobson]

While my hon. Friend is commenting on the speech made by the hon. Member for Macclesfield (David Rutley), was he somewhat taken aback to discover that nurses, doctors, firefighters and police in Macclesfield are apparently not occupying real jobs?

[Kelvin Hopkins]

My right hon. Friend makes a good point: when we go to a hospital, we find that no one is there, because those in such jobs are not real people. Indeed, I might add Members of Parliament to that list.

The hon. Member for Cities of London and Westminster (Mark Field) was desperately trying to be positive about the Budget, but in the process he effectively damned the Chancellor with faint praise. If we had pressed him hard enough, I think he would have conceded most of our points.

The Bill will clearly do nothing to transform our economy. We are in a desperate state—an ongoing recession. The Chancellor says that his Budget is fiscally neutral, but when 2.5 million people are unemployed and we have low or negative growth, we do not want a fiscally neutral Budget. We should have had an expansionary Budget to promote growth, but of course even a fiscally neutral Budget could inject growth into the economy by raising taxes and spending more, rather than doing the opposite. If taxes on businesses and the wealthy are reduced, they tend to save their money—indeed, they put it in tax havens—whereas if ordinary people are given jobs, the first thing they do is to spend their money, and that money goes directly back into the economy and starts to generate demand through the multiplier.

The hon. Member for Cities of London and Westminster was right that forecasting is difficult. I remember that in 1990—I am older than everybody else in the Chamber—when The Sunday Times carried out a survey of forecasting organisations, it found that the London Business School was bottom of the league, scoring nought out of 10 for its forecasts, although of course that was the forecasting body adored by the Conservative Government under Mrs Thatcher. The best forecasts were by the Cambridge Economic Policy Group, a left-leaning Keynesian group, which got six out of 10 to come top of the league. The then Government were so annoyed by the Cambridge group that they took away its Government grant because they did not like people telling them that they were wrong, although they were.

Demand for the things that people produce is a crucial factor if an economy is to succeed, because although Governments can cut taxes for businesses and introduce all sorts of supply-side measures, if no one is buying anything, the economy will not grow. An equally crucial factor for sustaining that demand is an appropriate exchange rate. Successive Governments have ignored the exchange rate at their peril, but there have been times when the depreciation of our currency has had dramatic results, and I can cite three examples under a Conservative Government. Following Golden Wednesday and the collapse of the exchange rate mechanism, the economy grew strongly after a substantial depreciation. By the time that 1997 came along, the Conservatives were still being condemned for the collapse of the housing market and the people voted Labour—thank goodness for that—yet the Labour Government benefited from the strong demand generated by that depreciation. In 1979 Mrs Thatcher was praised for her economic policies, but the 1979 Budget, masterminded, if I can describe it like that, by Geoffrey Howe, resulted in a catastrophic collapse in demand. A fifth of manufacturing disappeared and unemployment soared to 3 million. It was only when those policies were reversed that there was a recovery, and on Nigel Lawson’s watch—I do not necessarily agree with everything he did—the pound depreciated by over 30%. Again, the economy grew strongly and unemployment came down.

Going back even further into history, in the 1931 crisis, a Labour Government mistakenly tried to sustain sterling on the gold standard, and tried to keep its parity up. The Government fell apart, and effectively a Conservative Government with a nominally Labour Prime Minister came in straight afterwards. The first thing they did was take the pound off the gold standard and depreciate, and the recovery began. That was only part of it; other factors were necessary to sustain recovery in the 1930s. We had to spend a lot of money, and towards the end of the ’30s the country built thousands—indeed, millions—of houses, and that was how we recovered. That is what we ought to do now.

In other countries, Germany built arms and autobahns; in America, there was the new deal—spending money on all sorts of public works, which created the demand in the economy that brought about recovery. It was not fiddling around with tax rates and supply-side measures. That did not work then, and it will not work now. The exchange rate is therefore absolutely crucial, and the exchange rate at this time is too high. Part of our recovery should depend on a significant depreciation. An erudite and informed book by my friend John Mills has been written about this, and I have quoted from it in the Chamber. It makes a detailed case for such measures.

The trade statistics are disastrous, and some of us have been worried about manufacturing for a long time. Our manufacturing sector is about half the size of the German manufacturing sector as a proportion of our economy, which is disastrous. We should be a similar economy to Germany in many ways. Historically, we have been very similar in all sorts of ways, but our manufacturing has collapsed. That was partly because in 1997, when Labour came to office, there was at the same time a substantial appreciation of the pound, which began to damage manufacturing. We were sustained by an asset price bubble, which carried on, and thank goodness, we had a relatively strong economy for some time. However, manufacturing did not do well, because of the relatively strong pound. It was only the crisis of 2008, when there was a significant depreciation, that saved us. Had we been stuck in the euro, we would be like Spain now—it would be absolutely disastrous—so we must applaud my right hon. Friend the Member for Kirkcaldy and Cowdenbeath (Mr Brown) for keeping us out of the euro, despite pressure from the then Prime Minister. I was one of those who supported my right hon. Friend very strongly at the time.

[Jonathan Edwards]

I agree with a number of the hon. Gentleman’s points. The Government talk a good game about rebalancing the economy geographically and sectorally, and about an export-led recovery, but they will not achieve those objectives unless they tackle the exchange rate.

[Kelvin Hopkins]

Indeed. We have to use all the weapons and measures of macro-economic policy to make sure that we recover. Fiddling around with supply-side measures is no doubt the sort of thing that the London Business School talked about in 1990, but it will not solve our problems.

The macro-economic measures that we must take include, first, tackling the exchange rate. Secondly, we must inject demand through additional public spending, and we can pay for that in various ways without necessarily increasing the deficit. We could raise taxes on the rich very substantially. For example, we could begin seriously to close the tax gap and collect the tax that has been avoided or evaded, perhaps sending a few corrupt bankers to prison in the process. That would concentrate their minds, as I said earlier.

We need to begin to spend in areas of high labour intensity. If we can get people back to work quickly by spending in those sectors—construction and the public services, which have been cut by the Government—we can bring down unemployment. People pay tax when they are in jobs, they do not claim benefits, and the economy begins to recover. At the same time, we can build millions of houses that we need, particularly local authority houses, and we can provide all the nurses we need in hospitals. Hospitals are under stress because of a lack of staff on the wards. We can develop other areas too: local authority services, children’s services, and social services for the elderly, all of which are under stress and are things on which we should spend to generate more employment. We generate employment directly by spending money on areas with high labour intensity.

There is another great advantage of spending money in such areas. As my hon. Friend the Member for Swansea West (Geraint Davies), who has left the Chamber, said, the rich do not spend money: they put it in banks and tax havens. But ordinary people, especially if they have been unemployed, spend every single penny of their money on supporting their families, dealing with their debts and so on. They spend their money. They have what the economists call a high marginal propensity to consume. We should give as much money as possible to those who have that high marginal propensity to consume, not to those who stuff it in banks and foreign tax havens. That would help to regenerate the economy.

Another great thing about public services and construction is that they put demand into the domestic economy, not into the foreign economy. If I were given extra cash, which I do not need—I think I should pay a bit more tax—what would I do? I would have another foreign holiday. I might buy another case of French wine. That does not help our economy at all. But if construction workers have extra cash, they go out and spend it in the shops on food, their homes and their family. They spend it in the domestic economy. They do not, as far as I know, buy large quantities of French wine or have fancy foreign holidays, especially when they are just coming out of unemployment. They would spend their money in the domestic economy.

The great thing about construction is that it has a low import content. Most of what is used in construction comes from the domestic economy. Again, the demand goes into the domestic economy so the spending by construction workers in their new jobs becomes someone else’s income within the domestic economy. We get the multiplier effect of one person’s spending becoming another person’s income going around in a big circle and the economy is regenerated.

That is what we need—pure Keynesian reflation, but we have other measures to deal with that. If it necessitates some serious tax increases, so be it. The majority of the population have said in opinion polls, I understand, that they would prefer tax hikes to spending cuts. That is absolutely right. We are frightened of saying that we should have higher taxes. Francois Hollande in France decided to introduce a significantly higher tax rate for a substantial proportion of the population. Some people will squeal about it and no doubt the right-wing media in Britain would squeal about it, but there should be a bit more tax, even on MPs such as myself. I have suggested that the first tax rise should be the 50% rate not at £150,000, but at £60,000, so that I would pay a little more tax. I am talking about me as well as about other people. It is easy for us to make changes that affect other people, not ourselves.

Such a change could be made, if need be, but in the short term we do not need to do that. We need to collect the taxes that should be paid and which are the subject of tax avoidance and tax evasion. We need a radical economic strategy, including all the components that I have suggested, to get us out of the mess we are in—and we are in a mess. In his Budget speech, the Chancellor looked like a frightened man. He looked very worried. Clearly, his strategy is not working. He does not know what to do without doing a complete U-turn and adopting a completely different strategy—the kind of strategy that I am talking about—which would mean political humiliation for him. He should worry less about political humiliation than about doing the right thing by the country.